UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
Commission file number 0-27022
OPTICAL CABLE CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 54-1237042
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
5290 Concourse Drive
Roanoke, Virginia 24019
(Address of principal executive offices, including zip code)
(540) 265-0690
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. (1) Yes X No (2) Yes X No
--- --- --- ---
As of March 14, 1997, 38,675,416 shares of the registrant's Common Stock,
no par value, were outstanding. Of these outstanding shares, 36,000,000 shares
were held by Robert Kopstein, Chairman of the Board, President and Chief
Executive Officer of the registrant.
OPTICAL CABLE CORPORATION
Form 10-Q Index
Three Months Ended January 31, 1997
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets - January 31, 1997 and
October 31, 1996....................................................2
Condensed Statements of Income - Three Months
Ended January 31, 1997 and 1996.....................................3
Condensed Statement of Changes in Stockholders'
Equity - Three Months Ended January 31, 1997........................4
Condensed Statements of Cash Flows - Three Months
Ended January 31, 1997 and 1996.....................................5
Condensed Notes to Condensed Financial Statements...................6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..............................9-11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.....................................12
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
OPTICAL CABLE CORPORATION
Condensed Balance Sheets
(Unaudited)
January 31, October 31,
Assets 1997 1996
----------- --------------
Current assets:
Cash and cash equivalents $ 303,307 $ 1,677,739
Trade accounts receivable, net of
allowance for doubtful accounts of
$330,000 at January 31, 1997 and
$300,000 at October 31, 1996 8,594,476 9,368,476
Other receivables 724,615 354,041
Due from employees 4,125 1,475
Inventories 9,530,041 10,261,437
Prepaid expenses 122,762 64,863
Deferred income taxes 168,349 155,304
-------------- -------------
Total current assets 19,447,675 21,883,335
Other assets, net 63,745 67,996
Property and equipment, net 10,563,633 9,175,871
-------------- -------------
Total assets $ 30,075,053 $ 31,127,202
============== =============
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable $ 720,000 $ 1,103,000
Accounts payable and accrued expenses 1,792,875 5,488,765
Accrued compensation and payroll taxes 601,551 676,725
Income taxes payable 1,264,947 237,926
-------------- -----------
Total current liabilities 4,379,373 7,506,416
Deferred income taxes 43,760 49,227
--------------- -----------
Total liabilities 4,423,133 7,555,643
--------------- -----------
Stockholders' equity:
Preferred stock, no par value,
authorized 1,000,000 shares;
none issued and outstanding - -
Common stock, voting; no par value,
authorized 50,000,000 shares; issued
and outstanding 38,675,416 shares 18,594,116 18,594,116
Retained earnings 7,057,804 4,977,443
-------------- ------------
Total stockholders' equity 25,651,920 23,571,559
Commitments and contingencies -------------- -------------
Total liabilities and stockholders'
equity $ 30,075,053 $ 31,127,202
============== =============
See accompanying condensed notes to condensed financial statements.
2
OPTICAL CABLE CORPORATION
Condensed Statements of Income
(Unaudited)
Three Months Ended
January 31,
-------------------------------
1997 1996
---- ----
Net sales $ 12,491,311 $ 10,342,472
Cost of goods sold 7,139,646 5,635,451
------------- -------------
Gross profit 5,351,665 4,707,021
Selling, general and administrative expenses 2,138,576 1,938,804
------------- -------------
Income from operations 3,213,089 2,768,217
Other income (expense):
Interest income 5,160 6,878
Interest expense (10,201) -
Other, net (4,178) (101)
------------- -------------
Other income (expense), net (9,219) 6,777
------------- -------------
Income before income tax expense 3,203,870 2,774,994
Income tax expense 1,123,509 -
------------- -------------
Net income $ 2,080,361 $ 2,774,994
============= =============
Pro forma income data:
Net income before pro forma income tax
provision, as reported $ 2,774,994
Pro forma income tax provision 1,065,597
-------------
Pro forma net income $ 1,709,397
============
Net income per share (pro forma for 1996) $ 0.05 $ 0.04
============= =============
Weighted average shares outstanding (pro forma for 1996) 38,675,416 37,800,000
============= =============
See accompanying condensed notes to condensed financial statements.
3
OPTICAL CABLE CORPORATION
Condensed Statement of Changes in Stockholders' Equity
(Unaudited)
Three Months Ended January 31, 1997
----------------------------------------------------------------------
Common Stock Total
---------------------------- Retained Stockholders'
Shares Amount Earnings Equity
------------- ------------- ------------- -------------
Balances at October 31, 1996 38,675,416 $ 18,594,116 $ 4,977,443 $ 23,571,559
Net income - - 2,080,361 2,080,361
------------- ------------- ------------- -------------
Balances at January 31, 1997 38,675,416 $ 18,594,116 $ 7,057,804 $ 25,651,920
============= ============= ============= =============
See accompanying condensed notes to condensed financial statements.
4
OPTICAL CABLE CORPORATION
Condensed Statements of Cash Flows
(Unaudited)
Three Months Ended
January 31,
-------------------------------
1997 1996
---- ----
Cash flows from operating activities:
Net income $ 2,080,361 $ 2,774,994
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 172,975 105,063
Bad debt expense (recovery) 30,000 (2,623)
Deferred income taxes (18,512) -
(Increase) decrease in:
Trade accounts receivable 744,000 (1,151,132)
Other receivables (370,574) (3,813)
Due from employees (2,650) 800
Inventories 731,396 (162,566)
Prepaid expenses (57,899) (9,231)
Other assets - (226,478)
Increase (decrease) in:
Accounts payable and accrued expenses (3,104,935) 130,592
Accrued compensation and payroll taxes (75,174) 125,036
Income taxes payable 1,027,021 -
------------- -------------
Net cash provided by operating activities 1,156,009 1,580,642
Cash flows from investing activities:
Purchase of property and equipment (2,147,441) (234,224)
------------- -------------
Net cash used in investing activities (2,147,441) (234,224)
Cash flows from financing activities:
Net payments on notes payable (383,000) (309,000)
Cash distributions to previously sole stockholder - (1,000,000)
------------- -------------
Net cash used in financing activities (383,000) (1,309,000)
------------- -------------
Net increase (decrease) in cash and cash equivalents (1,374,432) 37,418
Cash and cash equivalents at beginning of period 1,677,739 535,235
------------- -------------
Cash and cash equivalents at end of period $ 303,307 $ 572,653
============= =============
See accompanying condensed notes to condensed financial statements.
5
OPTICAL CABLE CORPORATION
Condensed Notes to Condensed Financial Statements
Three Months Ended January 31, 1997
(Unaudited)
(1) General
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial reporting information and the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion
of management, all material adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the three months ended January 31, 1997
are not necessarily indicative of the results that may be expected for
the fiscal year ending October 31, 1997. The unaudited condensed
financial statements and condensed notes are presented as permitted by
Form 10-Q and do not contain certain information included in the
Company's annual financial statements and notes. For further
information, refer to the financial statements and notes thereto
included in the Company's annual report on Form 10-K for the fiscal
year ended October 31, 1996.
(a) Pro Forma Net Income Per Share
For the three months ended January 31, 1996, pro forma net income
per share was computed by dividing pro forma net income by the
pro forma weighted average number of common shares outstanding
during the period and by deeming to be outstanding the number of
shares (1,800,000) the Company would have needed to issue at the
initial public offering price per share ($2.50) to pay a $1
million cash distribution to the previously sole stockholder in
December 1995 and a $3.5 million cash distribution to the
previously sole stockholder out of the proceeds of the initial
public offering.
(b) Net Income Per Share
For the three months ended January 31, 1997, net income per share
was computed by dividing net income by the weighted average
number of common shares outstanding during the period. The
calculation of weighted average shares outstanding does not
include the effect of common stock options since their impact on
the weighted average shares outstanding is less than three
percent.
(2) Inventories
Inventories at January 31, 1997 and October 31, 1996 consist of the
following:
January 31, October 31,
1997 1996
---- ----
Finished goods $ 3,518,799 $ 2,465,659
Work in process 2,311,488 3,104,339
Raw materials 3,645,562 4,645,843
Production supplies 54,192 45,596
------------- -------------
$ 9,530,041 $ 10,261,437
============= =============
6
OPTICAL CABLE CORPORATION
Condensed Notes to Condensed Financial Statements
(Unaudited)
(3) Notes Payable
On February 28, 1997, the Company and its bank executed a loan
commitment letter, which renewed its $5 million secured revolving line
of credit available for general corporate purposes and established a
$10 million secured line of credit to fund potential acquisitions,
mergers or joint ventures. The lines of credit bear interest at 1.50
percent above the monthly LIBOR rate and are equally and ratably
secured by the Company's accounts receivable, contract rights,
inventory, furniture and fixtures, machinery and equipment and general
intangibles. The lines of credit will expire on February 28, 1998,
unless renewed or extended.
(4) Income Taxes
Income tax expense for the three months ended January 31, 1997 consists
of:
Current Deferred Total
------------- ------------- -------------
U.S. Federal $ 1,063,382 $ (17,722) $ 1,045,660
State 78,639 (790) 77,849
------------- ------------- -------------
Totals $ 1,142,021 $ (18,512) $ 1,123,509
============= ============= =============
Through March 31, 1996, the Company was not subject to federal and
state income taxes since it had elected to be taxed as an S
Corporation. In connection with the closing of the Company's initial
public offering, the Company terminated its status as an S Corporation
effective March 31, 1996 and became subject to federal and state income
taxes. Accordingly, the statement of income for the three months ended
January 31, 1997 includes income taxes, and for informational purposes,
the statement of income for the three months ended January 31, 1996
includes a pro forma adjustment for income taxes which would have been
recorded if the Company had been subject to income taxes for the entire
period presented.
(5) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of, on November 1, 1996. This Statement requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Recoverability
of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be
generated by the asset. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceed the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell. Adoption of this Statement did
not have a material impact on the Company's financial position, results
of operations, or liquidity.
7
OPTICAL CABLE CORPORATION
Condensed Notes to Condensed Financial Statements
(Unaudited)
(6) Stock Option Plan
Prior to November 1, 1996, the Company accounted for its stock option
plan in accordance with the provisions of Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations. As such, compensation expense would be
recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. On November 1, 1996, the
Company adopted SFAS No. 123, Accounting for Stock-Based Compensation,
which permits entities to recognize as expense over the vesting period
the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply
the provisions of APB Opinion No. 25 and provide pro forma net income
and pro forma earnings per share disclosures for employee stock option
grants made in 1995 and future years as if the fair-value-based method
defined in SFAS No. 123 had been applied. The Company has elected to
continue to apply the provisions of APB Opinion No. 25 and will provide
the pro forma disclosure provisions of SFAS No. 123 in its annual
report for the fiscal year ending October 31, 1997.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Sales
Net sales consists of gross sales of products, less discounts, refunds and
returns. Net sales increased 20.8 percent to $12.5 million in first quarter 1997
from $10.3 million for the same period in 1996. This increase was attributable
to the Company's continued effort to reach a broader customer base throughout
the United States and internationally with increased advertising, trade show
attendance, and direct sales presence in more states. This effort resulted in
greater sales in all market segments and product types.
Gross Profit Margin
Cost of goods sold consists of the cost of materials, compensation costs and
overhead related to the Company's manufacturing operations. The Company's gross
profit margin (gross profit as a percentage of net sales) decreased to 42.8
percent in first quarter 1997 from 45.5 percent in first quarter 1996. This
decrease was due to the Company's product mix sold and the ratio of net sales
attributable to the Company's distributors during the quarter. During first
quarter 1997, sales from orders $50,000 or more approximated 26 percent compared
to 16 percent for first quarter 1996. Discounts on large orders are generally
greater than for sales from orders less than $50,000. In addition, during first
quarter 1997, net sales to distributors approximated 52 percent versus 45
percent for the same period in 1996. Discounts on sales to distributors are
generally greater than for sales to the Company's other customer base.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist of the compensation costs
(including sales commissions) for sales and marketing personnel, travel
expenses, customer support expenses, trade show expenses, advertising, the
compensation cost for administration, finance and general management personnel,
as well as legal and accounting fees. Selling, general and administrative
expenses as a percentage of net sales were 17.1 percent in first quarter 1997
compared to 18.7 percent in first quarter 1996. This lower percentage was
primarily the result of the fact that net sales for first quarter 1997 increased
at a faster rate than selling, general and administrative expenses compared to
first quarter 1996.
Income Before Income Tax Expense
Income before income tax expense increased 15.5 percent to $3.2 million for the
three months ended January 31, 1997 compared to $2.8 million for the three
months ended January 31, 1996. This was primarily due to increased sales volume.
Income Taxes
Through March 31, 1996, the Company was not subject to federal and state income
taxes since it had elected to be taxed as an S Corporation. In connection with
the Company's initial public offering, the Company terminated its status as an S
Corporation effective March 31, 1996 and became subject to federal and state
income taxes. Accordingly, the statement of income or the
9
three months ended January 31, 1997 includes income taxes, at an effective tax
rate of 35.1 percent, and for informational purposes, the statement of income
for the three months ended January 31, 1996 includes a pro forma adjustment for
income taxes, at an effective tax rate of 38.4 percent, which would have been
recorded if the Company had been subject to income taxes for the entire period
presented. The lower effective tax rate in first quarter 1997 is due primarily
to the benefit of the Company's foreign sales corporation.
Net Income
Net income for first quarter 1997 was $2.1 million compared to $2.8 million for
first quarter 1996. Despite an increase in income before income tax expense, net
income decreased due to income tax expense of $1.1 million for first quarter
1997 as a result of the Company's termination of its S Corporation status
effective March 31, 1996.
Net income for first quarter 1997 increased $371,000, or 21.7 percent over pro
forma net income for first quarter 1996. This increase resulted from the
increase in income before income tax expense of $429,000, offset by the $58,000
increase in income tax expense in first quarter 1997 over pro forma income tax
provision for the same period in 1996.
Financial Condition
Total assets at January 31, 1997 were $30.1 million, a decrease of $1.1 million,
or 3.4 percent from October 31, 1996. This decrease was primarily due to a
decrease of $774,000 in trade accounts receivable resulting from the decreased
sales volume during the quarter as compared to fourth quarter 1996, a $731,000
decrease in inventories and a $1.4 million increase in property and equipment,
net, due to the Company's expansion of its headquarters facilities which is
substantially complete as of January 31, 1997. The expansion was funded
primarily through the $1.4 million decrease in cash and cash equivalents.
Total stockholders' equity at January 31, 1997 increased $2.1 million, or 8.8
percent in first quarter 1997 with net income retained accounting for the
increase.
Liquidity and Capital Resources
The Company's primary capital needs have been to (i) fund working capital
requirements, (ii) repay indebtedness, (iii) purchase property and equipment for
expansion and (iv) fund distributions to its previously sole stockholder
primarily to satisfy his tax liabilities resulting from S Corporation status.
The Company's primary sources of financing have been cash from operations, bank
borrowings and proceeds from the initial public offering of the Company's common
stock. The Company believes that its cash flow from operations and available
lines of credit will be adequate to fund its operations for at least the next
twelve months. As of the date hereof, the Company has no additional material
sources of financing.
On February 28, 1997, the Company and its bank executed a loan commitment
letter, which renewed its $5 million secured revolving line of credit available
for general corporate purposes and established a $10 million secured line of
credit to fund potential acquisitions, mergers or joint ventures. The lines of
credit are equally and ratably secured by the Company's accounts receivable,
contract rights, inventory, furniture and fixtures, machinery and equipment and
general intangibles. The lines of credit will expire on February 28, 1998,
unless renewed or extended.
10
Cash flows from operations were approximately $1.2 million and $1.6 million in
first quarter 1997 and 1996, respectively. For first quarter 1997, cash flows
from operations were primarily provided by operating income and decreases in
trade accounts receivable of $744,000 and inventories of $731,000, offset by a
decrease in accounts payable and accrued expenses of $3.1 million. Cash flows
from operations in first quarter 1996 were primarily provided by operating
income, offset by an increase in trade accounts receivable of $1.1 million.
Net cash used in investing activities was for expenditures related to facilities
and equipment and was $2.1 million and $234,000 in first quarter 1997 and 1996,
respectively. The Company's expansion of its headquarters facilities is
substantially complete, and as of January 31, 1997, there were no material
commitments for additional capital expenditures.
Net cash used in financing activities was $383,000 and $1.3 million in first
quarter 1997 and 1996, respectively. The net cash used in financing activities
in first quarter 1997 consisted of repayment of debt outstanding under the
Company's line of credit of $383,000 compared to $309,000 for first quarter
1996. The net cash used in financing activities for first quarter 1996 also
included a $1 million cash distribution to the Company's previously sole
stockholder for payment of his income taxes with respect to the taxable income
of the Company prior to the termination of the Company's S Corporation status.
11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K for the three
months ended January 31, 1997.
(27) Financial Data Schedule.
(b) Reports on Form 8-K filed during the three months ended
January 31, 1997.
None.
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OPTICAL CABLE CORPORATION
(Registrant)
Date: March 14, 1997 /s/Robert Kopstein
--------------------------------------------
Robert Kopstein
Chairman of the Board, President and
Chief Executive Officer
Date: March 14, 1997 /s/Kenneth W. Harber
-----------------------------------------
Kenneth W. Harber
Vice President of Finance, Treasurer
and Secretary
(principal financial and accounting officer)
5
1,000
U.S.
3-MOS
OCT-31-1997
NOV-01-1996
JAN-31-1997
1
303
0
8,924
330
9,530
19,448
13,712
3,148
30,075
4,379
0
0
0
18,594
7,058
30,075
12,491
12,496
7,140
9,278
4
30
10
3,204
1,123
2,080
0
0
0
2,080
0.05
0.05
